S&P: State, City Credit Downgrades May Rise in 2011

Reductions in the credit ratings of state and local governments may mount this year as officials face the need to cut spending further, Standard & Poor’s said.

“Continued revenue decreases for state and local government may increase fiscal strain on budgets,” a San Francisco-based S&P analyst, Gabriel Petek, said in a report today. “Monitoring of liquidity will be especially important in 2011.”

States have reported $125 billion of budget gaps for fiscal 2012, according to the Center on Budget and Policy Priorities, a Washington research group, as the worst recession since the 1930s cut tax receipts by the most on record. That will cause “severe budget pressures requiring tough choices by government officials,” S&P said.

New York collected $363 million less in taxes than expected during the past nine months, which may help push the budget into a $1.5 billion deficit this year, state Comptroller Thomas DiNapoli said Jan. 20.

Florida’s projected 2012 budget deficit is about $100 million more than forecast in December, state economists said Jan. 12. The $3.6 billion estimate is up from $2.5 billion in September.

State and local governments will have to make “difficult and unpopular budget choices and pay increasing heed to bond market conditions and pension costs,” S&P said.

Most will maintain their medium to high investment-grade ratings in 2011, it said.

“We do not feel that such difficulties will cause any sort of notable increase in defaults among our rated issuers,” Petek said.

Reductions in the credit ratings of state and local governments may mount this year as officials face the need to cut spending further, Standard Poor s said. Continued revenue decreases for state and local government may increase fiscal strain on budgets, a San...